Challenges of federalism implementation in Nepal

Abstract

This study examines the complex issues of implementation of federalism in Nepal, which transformed from a unitary state to a federal democratic republic in 2015. The study conducts a qualitative review of secondary sources such as government reports, World Bank fiscal updates, academic literature and statements by provincial chief ministers to identify major implementation gaps in the political, administrative and fiscal dimensions. While Nepal has been successful in operationalizing political federalism through periodic elections, it performs poorly in the areas of administrative and fiscal federalism. Nearly one-third of local units in Nepal do not have chief administrative officers, provincial governments have 35% staff vacancies, and subnational units have fiscal deficits. Intergovernmental coordination mechanisms are poorly used. Decisions taken by the National Coordination Council in 2023 are far from implementation. The research identifies political interference, the unwillingness of the central government to devolve power, the delayed implementation of key federal laws and identity-based grievances, especially in Madhesh Province, as major obstacles. In comparison with India, Canada and Australia, Nepal’s three-tier federal system has its own problems of institutional immaturity and capacity deficits. The study concludes that effective federalism in Nepal requires enhanced fiscal autonomy for subnational governments, institutionalized intergovernmental coordination, timely implementation of federal legislation and a paradigmatic shift in political ideology from centralization to genuine power-sharing. The paper calls for a comprehensive approach to improving local governance capacities and strengthening fiscal federalism frameworks.